This morning, the US Supreme Court issued its much anticipated ruling in South Dakota v. Wayfair.¹ In a 5-4 ruling, the majority held that the physical presence standard articulated in Quill ² "is unsound and incorrect" and, as a result, overturned Quill and Bellas Hess.³

Regarding Quill, the majority held that it "is flawed on its own terms." Citing Complete Auto,⁴ the majority held that a physical presence standard is not a "necessary interpretation of the requirement that a state tax must be 'applied to an activity with a substantial nexus with the taxing State.'" The majority also found that Quill does not resolve market distortion but creates it, and that Quill  "imposes the sort of arbitrary, formalistic distinction that the Court's modern Commerce Clause precedents disavow."

The Court did not opine on the constitutionality of South Dakota's economic nexus standard, which creates nexus for a remote retailer with $100,000 in sales or 200 or more separate transactions in South Dakota. Instead, the Court vacated and remanded the case back to South Dakota, where any other Commerce Clause questions might be raised.

A Tax Alert is forthcoming.

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ENDNOTES

¹ South Dakota V. Wayfair, Inc., Dkt. No. 17-494 (U.S. S. Ct. June 21, 2018).

² Quill Corp. v. North Dakota, 504 U.S. 298 (1992).

³ National Bellas Hess, Inc. v. Illinois Dept. of Rev., 386 U.S. 753 (1967).

⁴ Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).